Bailout envoy urges Greece to speed up reforms

By Derek Gatopoulos
Associated Press

Published: Monday, July 2 2012 12:00 a.m. MDT

European Central Bank (ECB) board member Joerg Asmussen delivers his speech during an economic conference in Athens, Monday, July 2, 2012. Asmussen is in Athens as the struggling country's new coalition government holds talks with its rescue creditors. The government is seeking to amend Greece's bailout program as it battles a fifth year of recession. (AP Photo) (The Associated Press)

ATHENS, Greece — A senior European Central Bank official urged Greece's new government on Monday to avoid further delays in implementing major structural reforms.

ECB board member Joerg Asmussen is in Athens as the struggling country's new coalition government holds talks with its rescue creditors. The government is seeking to amend Greece's bailout program with international creditors as it battles a fifth year of recession.

Asmussen, who met with new Finance Minister Yannis Stournaras, said Greece should not "stretch the pain" of reforms any further.

"If one has identified that something needs to be done, do this quickly," Asmussen told a financial conference in Athens. "Don't wait. Don't stretch the pain ... because this is better to restore confidence in an economy."

Greece's June 17 election ended months of political uncertainty by producing a new conservative-led government but it also saw a sharp rise in support for parties opposed to the bailout.

European Central Bank (ECB) board member Joerg Asmussen delivers his speech during an economic conference in Athens, Monday, July 2, 2012. Asmussen is in Athens as the struggling country's new coalition government holds talks with its rescue creditors. The government is seeking to amend Greece's bailout program as it battles a fifth year of recession. (AP Photo) (The Associated Press)

New Prime Minister Antonis Samaras, who is convalescing at home following an eye operation, argues that the terms of Greece's bailout agreements that started in 2010 have failed to stimulate growth.

Asmussen, however, said a failure to tackle the underlying problems of Greece's crisis — its lack of economic competitiveness, high debt and a bloated public sector — would only result in more pain.

"The new government should not lose precious time looking to avoid or loosen the program. It should instead focus on how to maximize the effectiveness of reforms," he said. "The problems do not go away. Instead markets lose their trust in official statements. Governments have to take even more drastic policy measures to win back credibility."

Germany, the main single contributor to Greece's rescue loans, has insisted that Athens must implement all it has undertaken in return for a continued flow of funding.

"It is good custom to speak with every new government, and it is just as good custom that every new government of a country must keep to what the country agreed and promised in the past," German Finance Ministry spokesman Martin Kotthaus said in Berlin. "The Greek program is how it is and must be implemented accordingly."

Kotthaus said it was possible Greece's new government could put some "different accents" on exactly how it fulfills its saving and reform targets, as happened in Ireland and Portugal, but stressed the targets still had to be met.

Greece narrowly avoided bankruptcy earlier this year before winning a major debt restructuring deal with banks and additional bailout money from the other eurozone countries and the International Monetary Fund.

In return, Greece has continued to impose more austerity measures, including slashing the minimum wage.

Greek opposition leader Alexis Tsipras, whose left-wing Syriza party has drawn on popular anti-bailout sentiment, said the country was doomed to a euro exit unless it radically changed course and dumped the terms of the bailout deal.

"Changing the dosage of fatal medicine doesn't make any difference," Tsipras said, accusing the government of having already abandoned its pledge to renegotiate austerity terms with rescue lenders.

"If we continue with bailout austerity it will lead the country to an exit, a voluntary exit from the eurozone," he said. "Necessary structural reforms to distortions in the economy and public administration cannot succeed if attempted in this climate of collapse."

Salary cuts and tax increases that Greece has put in place have sent unemployment spiraling to above 22 percent — roughly double the EU average — and left the country struggling through a fifth year of recession.

Debt inspectors from the so-called troika — the EU, IMF and ECB — are due in Athens this week to meet the new government, made up of Samaras' conservatives, their traditional rival Socialists and a small left wing party.

The new government is facing more public discontent this summer, when a major round of tax hikes takes effect. A raft of tax exemptions will be scrapped and the annual threshold of taxable income will be slashed from €12,000 to €5,000 ($15,100 to $6,300).

Later Monday, Prime Minister Samaras was due to meet party leaders backing his coalition at his home to discuss the upcoming debt inspection.